Relating to the administration of the tax and related laws by the department of revenue by requiring composite returns for pass-through entities, restricting public disclosure of certain information, providing penalties, and including applicability provisions

This bill relates to the administration of the tax and related laws by the department of revenue by requiring composite returns for pass-through entities, restricting public disclosure of certain information, and modifying penalty provisions. DIVISION I.27 (penalties) to enhance the readability of the Code section.27. The bill modifies the penalty for the failure of a person to file a return from percent of the tax shown due or required to be shown due to percent of the unpaid tax. Currently, if a business fails to file a return, the business pays a penalty of $200 or an amount equal to percent of the imputed Iowa liability, not to exceed $25,000, whichever is greater. The bill modifies the penalty provision to specify the business pays a penalty of $200 or an amount equal to percent of the imputed Iowa liability, not to exceed $25,000, whichever is greater. The bill specifies the penalties for failure to timely file a return are in addition to any other penalty provided by law. The bill specifies that a taxpayer who is required to file a quarterly or monthly return may have one late return or payment over a three-year period before being ineligible to receive a waiver of a penalty for failing to file a return. Currently, there are conditions a taxpayer may raise in order to be eligible to receive the waiver of a penalty for failing to file a return. The bill strikes one of these conditions relating to the failure to file an inheritance tax return that resulted from a disclaimer, so in such a situation the penalty is not waivable. The penalty for failing to timely pay tax due is modified by the bill by assessing a percent penalty against the unpaid tax due rather than percent of the tax. The bill allows most conditions a taxpayer may raise in order to be eligible to receive a waiver of a penalty for failing to file a return to apply to the waiver of the penalty for failing to timely pay a tax due. If any person fails to pay the tax due and the department of revenue discovers the underpayment, the bill modifies the penalty from percent of the tax to percent of the unpaid tax. The bill specifies such a penalty is in lieu of the penalty for failing to timely pay a tax due. The bill modifies the penalty for willful failure to file a return or pay a tax from percent of the tax required to be shown or shown due to percent of the unpaid tax. The bill strikes a provision specifying which penalties are applicable if a person fails to file a return or fails to pay the tax, and willfully fails to file a return or willfully files a false return. The bill modifies the criminal offense of fraudulent practice relating to state taxes to include actions of a taxpayer who willfully submits any false information in support of the taxpayer’s taxes with the intent to receive a refund, credit exemption, reimbursement, rebate, or other payment or benefit, to which the tax person is not entitled. The bill modifies the criminal offense of fraudulent practice relating to state taxes to include actions of a taxpayer who willfully submits false information in support of an application for a refund with the intent to evade tax or receive a refund. The bill provides that the criminal offense of fraudulent practice is not waivable by the department of revenue. The penalties for fraudulent practice range from a simple misdemeanor to a class “C” felony depending upon the amount of money or value of property involved. The bill modifies the penalty for failure to use a required tax form to include failure to use the required manner to remit taxes. The penalty is modified from percent of the amount of tax due or required to be shown due to percent of the amount remitted in the incorrect form or manner not to exceed $500 per instance of incorrect form or manner. The bill specifies the penalty is in addition to any other penalty provided by law. Currently, in addition to any other tax penalty, if a taxpayer fails to file a return within days of written notice by the department of revenue, a $1,000 penalty is added to the amount of tax shown due or required to be shown due. The bill modifies the penalty by requiring the department of revenue to send a written demand to file a tax return, and if the taxpayer fails to file the return under rules adopted by the department, a $1,000 penalty is assessed against the amount due. The bill specifies the order in which a payment will be applied if a taxpayer has multiple unpaid tax periods.14(2)(b) by specifying that a seller of tangible personal property and specified digital products who is not otherwise required to collect sales tax may, but is not required to, collect and remit use tax. Current law requires the seller to collect and remit the use tax for such sales. The bill strikes the requirement that the director of revenue biennially submit a report to the governor and legislature containing recommendations for improvement to the system of taxation in the state. The bill allows the department of revenue to cancel withholding tax, sales tax, or use tax permits the department has verified are no longer in use. The department may cancel the permits from July 1, 2021, through December 31, 2021. DIVISION II. The bill establishes procedures and requirements for filing a composite return by a pass-through entity. A composite return is a single income tax return that reports the state income of numerous nonresident owners. The bill requires a pass-through entity to file a composite return on behalf of all nonresident owners of the pass-through entity based upon the nonresident owner’s Iowa-source income from the pass-through entity at the top individual, corporate, or franchise state tax rate, as applicable. The bill strikes provisions requiring a pass-through entity to withhold and remit taxes on nonresident distributions made during the course of the tax year. If a nonresident individual owner of a pass-through entity has only Iowa-source income from the pass-through entity and a composite return is filed, the bill relieves the individual of the obligation to file an individual income tax return, though the individual may choose to file such a return.24(3)(a)(3) by exempting a pass-through entity from filing a composite return in this state if the contact with this state is to conduct business in this state solely for the purpose of performing disaster relief. The bill specifies that a nonresident that has been included on a composite return shall receive credit for Iowa income or franchise tax paid on the nonresident member’s behalf by the pass-through entity, and any amounts in excess of the nonresident member’s Iowa tax liability for the applicable tax period may be refunded to the nonresident member. The bill provides that a tiered pass-through entity is subject to the same requirements to file a composite return and pay tax on the distributive shares of the tiered pass-through entity’s income. The bill defines a tiered pass-through entity to mean a member of a pass-through entity that is itself a pass-through entity. If the director of revenue determines it necessary for efficient administration, the director may require a pass- through entity to file a composite return for nonresidents other than nonresident members of the pass-through entity. The bill makes the due date of a composite return coincide with the pass-through entity’s regular annual tax return due date. The bill specifies certain circumstances when a pass- through entity is not required to remit Iowa income or franchise tax on behalf of a nonresident member. DIVISION III. The bill amends new Code chapter 22A, if enacted by 2021 Iowa Acts, House File 309, relating to the public disclosure of information relating to a tax-exempt entity by a public agency.11S (student tuition organization tax credit). The bill states disclosure restrictions imposed under Code chapter 22A, if enacted, shall not be construed to entitle any taxpayer or tax-exempt entity to any deduction, exemption, credit, or other tax position which the taxpayer or exempt entity is unable to substantiate with sufficient evidence.